24 Feb 2026
Property & Leasing
The new ACCC merger regime has commenced
The recent Supreme Court of New South Wales decision in Les & Zelda Investments Pty Ltd v Whitehaven Coal Ltd (No 4) (2026) NSWSC 107 (Les & Zelda) provides a timely examination of when courts will, and will not, imply obligations of good faith, cooperation and reasonable endeavours into sophisticated commercial contracts.
The plaintiffs sought to imply substantial positive obligations into a suite of acquisition documents, including Share Purchase Agreements and Restriction Deeds, in order to compel Whitehaven Coal to progress two mining projects so that certain Trigger Events would occur. Those events would have enabled conversion of “Milestone Shares” into unrestricted shares.
The Court rejected all such implied obligations and dismissed the proceedings with costs.
This update summarises the key aspects of the decision and outlines the practical implications for parties to commercial contracts, including property and leasing transactions, and their advisers.
Implied terms: the legal framework
Implied terms in fact – the BP Refinery test
The Court reaffirmed the well-known and stringent criteria for implying terms in fact, as set out in the BP Refinery case.1
A term will only be implied if all of the following are satisfied:
- reasonable and equitable;
- necessary to give business efficacy to the contract;
- so obvious that it goes without saying;
- capable of clear expression; and
- not contrary to any express term.
Australian courts are cautious about implying terms into contracts. McGrath J emphasised that implication is rare in bespoke commercial contracts drafted with legal advice, as courts assume the parties included what they intended, and omitted what they did not.
Implied terms in law
The Court found the transaction documents did not fall within any recognised category of contract that attracts implied terms by operation of law (such as employment or insurance contracts). They were heavily negotiated commercial instruments and not subject to any universal obligation of good faith or reasonable endeavours.
Implied duty of good faith
The Court considered various authorities.2 While it acknowledged continuing uncertainty in Australian jurisprudence, McGrath J noted that good faith is not automatically implied into commercial contracts, and will not be implied where doing so:
- contradicts the express allocation risk;
- adds positive obligations the parties did not adopt; or
- rewrites the commercial arrangement negotiated between sophisticated parties.
The court’s findings on each implied obligation
Implied duty to cooperate
The plaintiffs argued that Whitehaven was required to take positive steps to progress the Milestone Projects so that Trigger Events would occur.
The Court accepted only a narrow, negative form of the duty, namely, an obligation not to hinder or prevent the fulfilment of contractual conditions, rather than any obligation to take positive steps. Importantly:
- there was no express obligation on Whitehaven to expend capital or seek approvals;
- the Restriction Deeds expressly contemplated that Trigger Events might never occur;
- requiring project development would contradict the contractual allocation of risk.
Finding
A limited duty to cooperate was implied, but no breach occurred because Whitehaven did not hinder performance; it simply exercised commercial discretion.
Implied duty of good faith
Les & Zelda contended that good faith required Whitehaven to:
- act with fidelity to the contractual bargain;
- avoid capricious or self-interested decisions; and
- actively progress the projects.
The Court rejected this, holding that:
- the documents were detailed, heavily negotiated and structured to preserve Whitehaven’s discretion;
- implying good faith would impose substantive development obligations; and
- good faith cannot operate as a mechanism to “fill gaps” or reallocate commercial risk.
Even if a duty could be implied, the Court found no breach: Whitehaven’s decisions were commercially rational, informed by market downturns and budget constraints, and were not arbitrary.
Finding
The Court found there was no implied duty of good faith, and, in any event, there was no breach, even if a duty of good faith existed.
Implied duty to use reasonable endeavours
The plaintiffs argued that Whitehaven was required to use reasonable endeavours to achieve the Trigger Events.
The Court held that implying such a term would improperly require Whitehaven to:
- incur expenditure;
- seek approvals; and
- reprioritise commercial decision making.
These obligations were inconsistent with the express drafting and the risk allocation the parties agreed.
Finding
No implied obligation to use reasonable endeavours, and no breach even if such an obligation existed.
Key takeaways
- Good faith is not a default rule in commercial contracts, particularly in complex, bespoke agreements negotiated between sophisticated commercial parties.
- Courts will not imply positive obligations such as duties to act in good faith, spend money, pursue approvals or develop a project unless those obligations are stated expressly in the contract.
- Implied terms cannot be used to reconstruct commercial bargains, and courts will not use implication to disturb the risk allocation the parties deliberately accepted.
- The BP Refinery test remains a substantial hurdle, as a proposed implied term must satisfy all five limbs and will often fail at the requirement of necessity.
Conclusion
Les & Zelda reaffirms the courts’ reluctance to imply obligations that would alter the commercial allocation of responsibilities and risks contained in detailed, negotiated agreements.
Parties seeking to rely on implied duties, particularly good faith or reasonable endeavours, face significant hurdles and should ensure that any critical obligations are clearly and expressly drafted.
Disclaimer
The information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.
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